Burlington disputes Citibank accusation of improper telecom spending

Nov. 21, 2012

Written by

Free Press Staff Writer

Citibank has filed a new motion in U.S District Court in Burlington seeking a contempt ruling against the city in the Burlington Telecom case, accusing the city of improper spending on the service provider and shortchanging the financier.

Burlington’s city attorney, however, said the motion is based on a misunderstanding by Citibank of a prior court agreement.

Citibank has sued Burlington and the law firm of McNeil, Leddy & Sheahan to recover the $33.5 million it advanced to the city to build Burlington Telecom, the city-owned telephone, cable TV and high-speed Internet company.

The financier charged this week that Burlington violated a court order from March that ordered government leaders to pay 60 percent of the telecom’s net cash flow into an escrow account as rent for the continued use of equipment that became the bank’s property when the city terminated its lease-purchase agreement with Citibank in 2010.

Citibank said the city informed it in October that Burlington Telecom had a net cash flow of about $138,500 and should have paid $51,000-plus into the escrow account.

Instead, Citibank said in its court filing, Burlington paid just $9,200.

The Citibank filing includes a Nov. 16 letter from the city’s attorney, Michael Burak, which states that BT spent the money in question on capital expense that involved “significant upgrades and additions to the system above and beyond ordinary capital expenditures.”

The Burak letter, Citibank told the court, and the “purported accounting” provided by the city, “constitutes clear and convincing evidence that Burlington, with full knowledge of its obligation ... not to do so, deducted extraordinary capital expenses from its Net Cash Flow in making its most recent payment” under the court’s March order.

Citibank quotes from the order, saying it was “clear and unambiguous” in forbidding such deductions from the payments to the bank.

The city’s actions, Citibank said, “is only the latest in a series of actions evidencing Burlington’s contempt for its legal obligations. ... Burlington does as it wishes,” Citibank said, “evidencing a systematic strategy of ‘seeking forgiveness not permission.’”

(Page 2 of 2)

Not so, City Attorney Eileen Blackwood said in a prepared statement issued Wednesday evening by Mayor Miro Weinberbger’s office.

“Citibank, unfortunately, appears to have misunderstood the nature of the expenditures,” Blackwood said in the statement. “The city has fully complied with all the terms of the stipulation and expects that Citibank’s motion for contempt will be denied.”

Blackwood cited as a factor in the misunderstanding the lack of a dialogue that the city has sought between Burlington Telecom’s operational staff and Citibank personnel.

The mayor’s office said language in the March court agreement — “capital expenses incurred in the ordinary course” — covers the capital expenditures made last month by Burlington Telecom. The telecom had notified the Public Service Board that “this concentration of expenditures would be coming and would affect the amount of the payment to Citibank in November.”

The city will file a formal response in court to Citibank’s motion, the mayor’s office said.

Earlier this year, Citibank withdrew another contempt motion after winning assurances that the financial backer would be given quicker and more complete access to Burlington Telecom’s financial records.